Wednesday, August 29, 2007

Subprimate Woes Affecting the More Well Evolved

The problems of subprime loans and the "subprimates" who shackled themselves to them are now moving up the food chain. Loans for more than $417,000 are scarce and what is still available is very expensive.

How many buyers and sellers will be affected in Marin? We've already heard of a number of cases so far (for example). Who would have imagined that? But they must be an anomaly or something because we all know how everyone in Marin is filthy rich, right? So Marinites and wannabe Marinites should have no problem whatsoever making the $600,000 down payment (our laughable $1 mill median minus what would be needed to get a loan for something at or below the $417K cutoff) needed to get a loan for about $417K or less. Right? I mean Marin housing is "immune" and a "sure thing" so it's not like that $600K down payment is at risk. Right?
(AP) The subprime mortgage crisis is spreading to a somewhat unexpected place: homes costing more than $500,000.

As lending has rapidly gotten more restrictive for borrowers taking out large loans, sales of expensive homes have fallen sharply around the country during what should be one of the busiest seasons for buyers and sellers...

To some degree the change is due to difficulty getting financing, as borrowers are finding fewer lenders willing or able to fund "jumbo" mortgages, loans for amounts greater than $417,000. Such loans are too big to be guaranteed by government-sponsored housing finance agencies Fannie Mae, Freddie Mac or Ginnie Mae.

The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.

But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.

"I think the psychological damage is worse than the financial damage" which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces "the ardor to buy a house unless you have to," he adds.

With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage...

In and around San Francisco, where the median home price is about $1.1 million, the tougher financing environment has created a "hesitancy and has led to some canceled escrows for buyers around the $1 million range, said Rick Turley, president of the San Francisco and Peninsula Region for Coldwell Banker Residential Brokerage.


Blogger Matthew said...

"I think the psychological damage is worse than the financial damage" which is already bad enough, he said."...

I agree with some of this statement, but not in the same context as he indicates. I don't think, for the average FB, that the psychological damage will be worse than the financial damage because the financial damage from this HUGE bubble will be devastating to many people. I would not necessarily call what is happening in the market right now psychological damage. Rather, it's more like a psychological shift, which is a huge thing in a consumer driven economy... and a massive thing in an economy where the average Joe is looking for that free ticket to financial freedom as opposed to hard work.

The absolute worst thing that can happen to the RE machine is for this unwinding to unwind all their years of hype and grandstanding about the allure, power, glamour and sexiness of real estate investing. I'll give the machine credit in creating that marketing image because it's one of the few things still holding up this market, but it’s falling, and falling fast.

However, just as sure as we'll see prices fall and fall and fall, we'll see that image of the investor tarnished and ripped apart over the next 2 or 3 years to the point where nobody will much care. People will start to care again about your real contributions to society, your kid's behavior, your education, intelligence and interest etc etc, not if you own a couple of duplexes that are cash flow negative.

Yes, we’re seeing a serious pinch on the entire market (low, medium and high), just as we should because the entire market is grossly overpriced. I know several high flying couples in southern Marin who are in the process of liquidating their Marin and Tahoe homes and selling all their heloc’d hocked toys (boats, ski doo’s, sports car ..) in order to make payments and downsize.

They are all beautiful people (tall, fit and always smiling etc) on the outside, but not much below the surface. They are both facing financial mayhem because of their over-extended lifestyle. (One guy in mortgages and one guy a contractor… wives are your typical botox beauties).. I’m sure they’ll survive and land on their feet… My best to them.. well, sort of anyhow…


Aug 30, 2007, 5:51:00 AM  
Blogger Matthew said...

And one more thing while it's on my mind here as my day starts..

If and when I get back into this market again, you can be sure that I will not be using any Realtor who "was born and raised in Marin".. Oh so sorry honey...

I see and read this all the time on adds, like it some form of special education or achievement and somehow entitles the individual to a huge commission or extra attention by this mere fact..

Nope, if I use one, I'll take the Realtor who's been around and has an edge to him or her. Someone who wasn't born with a silver spoon in their mouths and has had a few hard knocks and has got back up on their feet. Most of these Marin Realtors are clueless about the word and life outside Marin. And because of that, they are not joining me in my foxhole. They sure as hell haven't earned it.


Aug 30, 2007, 6:03:00 AM  
Blogger Rob Dawg said...

"So easy even a real estate agent can do it."

The prospect of buy my next houses without a RE pro makes a lot more deals all the more profitable. The minute CA hints of tightened standards Im going out and getting my ticket punched.

Aug 30, 2007, 6:46:00 AM  
Blogger marinite2 said...

Seems to me that "financial damage" and "psychological dafmage" are one and the same thing. Markets and the assignment of value to items sold in markets is nothing more than human psychology. Unless you believe things can have inherent value...

Aug 30, 2007, 9:52:00 AM  
Blogger Lisa said...

Well, for those boom years, it really did seem like Marin was sprinkled with fairy dust.

But for people to be mortgaged to the gills just to be a homeowner here...I just think the bust will be on the quiet side...there is so much ego and "master of the universe" crap here in Marin that it will be tough for people to admit that we're not that special and not that smart either. We're just another market that drank the kool-aid.

Aug 30, 2007, 1:50:00 PM  
Blogger Ms Hawks said...


Perhaps a bit off topic, but I’ve been collecting my own not-very-scientific RE SFR data via ZipRealty ( I trust me more than those tweaked numbers from the RE industry). Bemused that half million dollar homes were referred to as “starters” by some daft stretch of the dimly lit realtor imagination, I began checking the 9 county area for numbers on 1/1 and up SFRs under $500k last Oct., to track the movement downward and other stats as well.

Each month, for the 9 county area, I check:

total SFRs
# reduced
# under 500k
# under 400k, 300k and 200k (obviously some counties haven’t rolled this low...yet)
# in 1-10M range, and # of those reduced (like to see just how immune those millionaires are)

I ususally check mid-month, but checked today (8/30) and found Bay Area housing inventory is going through the roof.

Here's the increase in SFR inventory (1/1 and up) in past two weeks (8/16 to 8/30)

S. Clara - up 14% from 4380 to 5018
S. Cruz -up 8% from 1150 to 1240
Sonoma up 10 % from 2679 to 2944
San Mateo up 20% from 1804 to 2169
Marin up 6% from 652 to 692
San Francisco up a whopping 39% from 540 to 749

Could it be that the “cancelled escrows” contributed to the sudden growth of inventory in SF?

Two weeks! Since SF, S. Mateo and S. Clara are our most priciest counties (outside of Marin) I wonder if there isn’t a sudden market panic. Sell the house honey, our equity is evaporating!

This is the biggest jump I've seen.

The percentage of total SFRs under 500k is growing in all counties, albeit slowly. For instance, in Oct ‘06, only .67% of Santa Cruz Co’s SFRs were under the half million asking price. Now 10.24% is asking $500k and under. I expect to see the lower end grow exponentially as the grim reality hits like a bucket of ice water over the heads of delusional sellers. Marin, which had nothing under $600k listed last year now has (at least) 24 SFRs.

I'd like to know what others think the real price of a "starter home" should be, and we can celebrate when the market hits it.Marinite:

Aug 30, 2007, 5:09:00 PM  
Blogger Matthew said...

MS Hawks.. Good stuff and thanks for the research.. I'm not surprised to see the jump in SFR in those lower price ranges... we'll see much, much more of the same in the months and years ahead I think.

The real price of a starter home in Marin should be NMT $250K in my opinion... Do I think we'll get there ? Maybe... I'll say a definitie "yes", if a big recession sets in... Then, people will begin to value work and the buck again and will start to look at these POS shacks for what they really are... POS shacks..

Of course, a recession would not be great news for many people, but, honestly, I think we're due for one and I'd rather our economy weather heavy storm than a hurricane...

Aug 30, 2007, 6:04:00 PM  
Blogger marinite2 said...

Ms. Hawkes, you are now and henceforth known as Ms Marinite. I love the data. I've become too burnt out on blogging to collect data anymore. I am quite thankful you have done this research. Perhaps a chart or two would make things clearer? Just a suggestion.

Well done.

Aug 30, 2007, 6:23:00 PM  
Blogger Ms Hawks said...

Well, well! Ms Marinite indeed! And I live in Monterey County! Someday, after the dust settles perhaps I can actually afford that little farm in West Marin and become true to the moniker.

I appreciate the appreciation, and appreciate this like-minded community. It may be the only RE-related appreciation going on around here.

Charts would be great. Haven’t done any yet, but perhaps you could point me to the best chartmaking programs? There will be a learning curve. Hand drawn charts are what I usually do.

The SF jump is something. Between mid July and mid August ‘07, only 40 extra SFRs were added, just over 1 a day. Since I posted yesterday, 8 more SFR were added, now up to 757.

If SF (as if there’s a question) tanks, then I’d bet it’s taking its supercilious neighbor to the north with it.

(BTW, S. Clara added 47 new SFRs on 8/30 alone!)

Since stumbling upon this blog last year while researching earthquake hazard spots (leading to Ben’s blog, which I read daily) I’ve learned so much and become utterly fascinated with what I’m certain is destined to be a big, historical, hysterical, housing debacle. My insider’s view via this and other housing bubble blogs couldn’t help my own naysaying Florida in-laws and friends who purchased multiple props in the Gold Country, now in foreclosure.

Up until the widely broadcast mortgage/liquidity crises of July/August, the inventory numbers in the wealthier counties (S. Clara, SF, Marin, San Mateo, S. Cruz) have remained pretty much flat.

Now that the nasty cat of Truth is out of the bag, and people everywhere understand just how dire things are and are likely to become, I predict that my data will become quite dramatic. Just a hunch, whad’ya think?

Aug 31, 2007, 10:33:00 AM  
Blogger marinite2 said...

ms hawkes,

I think you are right and the data will become more "dramatic" with time. Keep recording the data so we have a nice time sequence.

As for graphing software: as I am too cheap to buy anything other than what I already have as long as it does the job (I have an old educational version of MS Office), I use Excel to make charts. It's very clunky and can do most anything you want, but it is not very intuitive.

Since like me you like to make charts by hand, maybe you can scan them and send them to be posted. Or, start your own blog and post them there...

Aug 31, 2007, 11:39:00 AM  

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